Today is an exciting day as I am now branching out from just covering AITX and will now be adding ALPP to my list of covered companies! For those of you that are new readers, check out my about page or any of my prior articles on AITX to get a sense of my work. Without further ado…
Today’s article is a bit of an introductory article which will explain the ALPP business model, how it works, and how it creates shareholder value. This article pulls from ALPP’s regulatory filings which are chalk full of buzzwords and fluff, so the goal is to cut through the noise and give you a no-nonsense explanation. I hope to have much more detailed articles out soon.
Business Model Basics
ALPP, at its core, is a conglomerate of small companies which grows both organically and through acquisitions. ALPP categorizes its member companies and potential acquisitions into four segments: Construction, Manufacturing, Aerospace, and Defense.
ALPP’s core strategy is to acquire and subsequently develop three different types of companies. They are Drivers, Stabilizers, and Facilitators.
Drivers are a fancy way of saying high-risk, high-reward startup stage companies. These are very early-stage companies which are generally not generating revenue or earning a profit. For these companies, ALPP buys out prior management and subsequently injects capital into the companies to allow them to grow.
The shareholder value proposition here is that ALPP has capital that can be allocated to these small startups. These startups would have trouble finding this capital as a standalone company and can further their vision being part of the ALPP family. So, in essence, it is a mutually beneficial arrangement as prior management typically retain an ownership share via ALPP stock.
Stabilizers are basically small businesses that are in a much more mature stage. This means that they are currently profitable and generate steady cash flows which grow at a moderate rate. These are your much more boring companies that just trudge along earning their healthy margins and don’t cause a lot of fuss.
ALPP drives shareholder value through stabilizers in three ways. First, ALPP identifies and purchases stabilizers as “value plays” in that they were able to purchase the company at an undervalued level. Second, ALPP uses its management techniques to optimize stabilizers to make them more efficient, effective, etc. to maximize profit. Lastly, and most importantly in my opinion, ALPP leverages the cash flows these companies generate to fund new acquisitions as well as fund internal capital expenditures on Drivers.
Long term and medium term, Stabilizers will be key in allowing ALPP to receive affordable debt financing and have to rely less on dilution. This is because of two things. First, because Stabilizers are typically asset intense, like manufacturing, etc. there is sufficient collateral for ALPP to borrow against. Second, Stabilizers have consistent cash flow which is what lenders care about. This will allow ALPP to borrow to fund acquisitions, and then pay off the debt and interest with the cash flow from Stabilizers, leaving shareholder value created without dilution.
Facilitators are a bit more of an abstract concept than Drivers or Stabilizers. Facilitators are companies that are acquired specifically to enhance another ALPP family company. For example, say ALPP purchases a supplier that a Stabilizer utilizes heavily and now the Stabilizer can procure some material at a much more cost-effective price. Another example would be if ALPP acquired some technology company and then utilized that piece of technology across all companies. These acquisitions are more “in the background” but can be very important.
To sum it up then, ALPP acquires Stabilizers to form a base of profitability and cash flow. Stabilizers then fund Drivers which eventually become Stabilizers when they mature. All the while, ALPP identifies Facilitators to enhance all companies. Not so bad, right?
Value Creation by Management
So, you might be thinking, all that ALPP does is just buy companies and put them under one umbrella? That’s it? Not quite, and this part is even more buzz word ridden that the DSF model…
This part is entirely subjective, so I can’t comment it too much, but basically ALPP has this long section in their filings where they talk about how they optimize businesses. This part is honestly just a lot of unnecessary business jargon that can be boiled down into a few key steps:
- Due diligence of acquisitions
- Optimizing the new business for 12-18 months through employee trainings, re-configuring business processes, etc.
- Reach a profitability stage
That’s it, you can skip that section in all of their regulatory filings.
To sum it all up, it works like this. Stabilizers fund Drivers and Facilitators. Drivers eventually become Stabilizers. Facilitators enhance everybody. That’s it! Hope this article was helpful and looking forward to writing many more ALPP articles.
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DISCLAIMER – AT THE TIME OF WRITING THIS ARTICLE I DO NOT HAVE A FINANCIAL INTEREST, LONG OR SHORT, IN $ALPP. THIS ARTICLE IS NOT FINANCIAL ADVICE AND IS INTENDED ONLY FOR EDUCATIONAL PURPOSES. AT THE TIME OF WRITING THIS ARTICLE, PERSONS AFFILIATED WITH THE COMPANY ANALYZED ABOVE MAY BE PROVIDING MONETARY COMPENSATION AS MONTHLY PATRONS THROUGH MY PATREON. THIS COMPENSATION IS NOT PROVIDED IN RETURN FOR ANY SERVICE, WRITING ABOUT A PARTICULAR TOPIC, AND/OR FAVORABLE OR UNFAVORABLE OPINIONS. MY PATREON SUPPORTERS HAVE NO INFLUENCE ON THE CONTENT OF MY ARTICLES.